<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
X QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE
----- SECURITIES EXCHANGE ACT OF 1934
For quarterly period ended SEPTEMBER 30, 1995
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
----- THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________________ to ________________
Commission file number 1-13738
PSYCHEMEDICS CORPORATION
(exact name of Small Business Issuer as specified in its charter)
Delaware 58-1701987
(State or other jurisdiction of (I.R.S. Employer
incorporation of organization) Identification No.)
1280 Massachusetts Ave., Ste. 200, Cambridge, MA 02138
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code (617-868-7455)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15 (d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No
----- -----
Number of shares outstanding of only class of Issuer's Common Stock as of
September 30, 1995: Common Stock $.005 par value (19,779,793 shares).
Transitional Small Business Disclosure Format.
Yes No X
------- -------
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<TABLE>
PSYCHEMEDICS CORPORATION
INDEX
<CAPTION>
Part I FINANCIAL INFORMATION Page No.
--------
<S> <C> <C>
Item 1 Financial Statements
Condensed Balance Sheets as of September 30, 1995
and December 31, 1994 3
Condensed Statements of Income for the three
and nine month periods ended September 30, 1995
and 1994 4-5
Condensed Statements of Cash Flows for the
nine month periods ended September 30, 1995
and 1994 6
Notes to Condensed Financial Statements 7
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 8-10
Part II OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K 11
</TABLE>
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<TABLE>
PSYCHEMEDICS CORPORATION
CONDENSED BALANCE SHEETS
(UNAUDITED)
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1995 1994
------------- ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 409,178 $ 544,776
Short-term investments 6,209,991 6,120,453
Receivables 1,702,029 1,417,701
Laboratory supplies 281,723 188,703
Prepaid expenses and other current assets 154,584 79,687
----------- -----------
Total current assets 8,757,505 8,351,320
----------- -----------
EQUIPMENT AND LEASEHOLD IMPROVEMENTS 3,651,807 2,837,862
Less-accumulated depreciation and amortization 1,685,599 1,291,684
----------- -----------
1,966,208 1,546,178
----------- -----------
OTHER ASSETS - NET 418,696 392,224
----------- -----------
$11,142,409 $10,289,722
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of obligations under capital leases $ 56,357 $ 153,942
Accounts payable 351,970 303,562
Accrued expenses 297,944 235,978
----------- -----------
Total current liabilities 706,271 693,482
----------- -----------
OBLIGATIONS UNDER CAPITAL LEASES,
net of current portion - 16,031
----------- -----------
SHAREHOLDERS' EQUITY:
Preferred stock, $.005 par value; authorized 1,000,000
shares; none outstanding - -
Common stock; $.005 par value; authorized 50,000,000
shares; issued 20,279,280 and 19,510,879
shares in 1995 and 1994, respectively 101,396 97,554
Paid-in capital 15,710,988 14,709,632
Treasury stock, at cost; 499,487 shares in 1995 (1,634,179) -
Accumulated deficit (3,742,067) (5,226,977)
----------- -----------
Total shareholders' equity 10,436,138 9,580,209
----------- -----------
$11,142,409 $10,289,722
=========== ===========
</TABLE>
See accompanying notes to financial statements and management's discussion
and analysis of financial condition and results of operations.
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<TABLE>
PSYCHEMEDICS CORPORATION
CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
<CAPTION>
THREE MONTHS
ENDED SEPTEMBER 30,
-------------------------
1995 1994
----------- -----------
<S> <C> <C>
REVENUE $ 2,667,417 $ 2,547,508
DIRECT COSTS 1,208,335 1,018,053
----------- -----------
Gross profit 1,459,082 1,529,455
----------- -----------
EXPENSES:
General and administrative 440,945 357,299
Marketing and selling 536,276 421,765
Research and development 114,305 103,810
----------- -----------
1,091,526 882,874
----------- -----------
INCOME FROM OPERATIONS 367,556 646,581
OTHER INCOME - NET 92,835 51,008
----------- -----------
INCOME BEFORE PROVISION
FOR INCOME TAXES 460,391 697,589
PROVISION FOR INCOME TAXES 30,000 24,300
----------- -----------
NET INCOME $ 430,391 $ 673,289
=========== ===========
NET INCOME PER COMMON SHARE
AND COMMON EQUIVALENT SHARE $ 0.02 $ 0.03
=========== ===========
WEIGHTED AVERAGE COMMON SHARES AND
COMMON SHARE EQUIVALENTS OUTSTANDING 21,637,380 21,048,643
=========== ===========
</TABLE>
See accompanying notes to financial statements and management's discussion
and analysis of financial condition and results of operations.
Page 4
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<TABLE>
PSYCHEMEDICS CORPORATION
CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
<CAPTION>
NINE MONTHS
ENDED SEPTEMBER 30,
-------------------------
1995 1994
----------- -----------
<S> <C> <C>
REVENUE $ 7,735,816 $ 6,420,766
DIRECT COSTS 3,453,336 2,711,604
----------- -----------
Gross profit 4,282,480 3,709,162
----------- -----------
EXPENSES:
General and administrative 1,279,635 998,493
Marketing and selling 1,356,536 1,181,768
Research and development 325,965 303,912
----------- -----------
2,962,136 2,484,173
----------- -----------
INCOME FROM OPERATIONS 1,320,344 1,224,989
OTHER INCOME - NET 268,866 81,751
----------- -----------
INCOME BEFORE PROVISION
FOR INCOME TAXES 1,589,210 1,306,740
PROVISION FOR INCOME TAXES 104,300 45,500
----------- -----------
NET INCOME $ 1,484,910 $ 1,261,240
=========== ===========
NET INCOME PER COMMON SHARE
AND COMMON EQUIVALENT SHARE $ 0.07 $ 0.07
=========== ===========
WEIGHTED AVERAGE COMMON SHARES AND
COMMON SHARE EQUIVALENTS OUTSTANDING 20,860,213 18,817,093
=========== ===========
</TABLE>
See accompanying notes to financial statements and management's discussion
and analysis of financial condition and results of operations.
Page 5
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<TABLE>
PSYCHEMEDICS CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<CAPTION>
NINE MONTHS
ENDED SEPTEMBER 30,
------------------------
1995 1994
----------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,484,910 $1,261,240
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 411,916 310,500
Changes in assets and liabilities:
Receivables (284,328) (196,208)
Laboratory supplies (93,020) (5,024)
Prepaid expenses and other current assets (74,897) (43,152)
Accounts payable 48,408 (66,729)
Accrued expenses 61,966 13,028
----------- ----------
Net cash provided by operating activities 1,554,955 1,273,655
----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of short-term investments - net (89,538) -
Purchases of equipment and leasehold improvements (813,945) (261,996)
Increase in other assets - net (44,473) (29,097)
----------- ----------
Net cash used in investing activities (947,956) (291,093)
----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net principal payments on obligations under
capital leases (113,616) (103,559)
Net proceeds from the issuance of
common stock 1,005,198 4,148,394
Net cash used to repurchase common stock (1,634,179) -
----------- ----------
Net cash (used in) provided by financing activities (742,597) 4,044,835
----------- ----------
NET INCREASE(DECREASE) IN CASH AND CASH EQUIVALENTS (135,598) 5,027,397
CASH AND CASH EQUIVALENTS, beginning of period 544,776 1,001,939
----------- ----------
CASH AND CASH EQUIVALENTS, end of period $ 409,178 $6,029,336
=========== ==========
</TABLE>
See accompanying notes to financial statements and management's discussion
and analysis of financial condition and results of operations.
Page 6
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PSYCHEMEDICS CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
September 30, 1995
1. The financial information furnished herein is unaudited; however, in the
opinion of management, it reflects all adjustments which are necessary to
fairly state the Company's financial position at September 30, 1995 and
December 31, 1994 and the results of its operations and cash flows for the
periods ended September 30, 1995 and 1994. The financial statements have been
prepared in conformity with generally accepted accounting principles
appropriate in the circumstances, and included in the financial statements are
certain amounts based on management's estimates and judgments.
The financial information herein is not necessarily representative of a full
year's operations because levels of sales, capital additions and other factors
fluctuate throughout the year. These same considerations apply to all year to
year comparisons. See the Company's Annual Report on Form 10-KSB for the year
ended December 31, 1994 for additional information not required by this report
(Form 10-QSB).
2. Net income per common share and common equivalent share is based upon the
weighted average number of common shares and common share equivalents
outstanding as computed using the treasury stock method.
<TABLE>
3. The following presents supplementary cash flow data:
<CAPTION>
Nine Months
Ended September 30,
-------------------
1995 1994
---- ----
<S> <C> <C>
Cash paid
for interest $ 8,500 $19,847
Cash paid for
income taxes $86,695 $15,628
</TABLE>
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Item 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
RESULTS OF OPERATIONS
---------------------
REVENUE
Revenue for the third quarter of 1995 was $2,667,417, an increase of 5% over
the $2,547,508 reported for the third quarter of 1994. Revenue for the nine
month period ended September 30, 1995 was $7,735,816 an increase of 20% over
the $6,420,766 reported for the comparable period of 1994. The revenue
increases result primarily from the addition of new customers and expanding
volume from the Company's existing customer base.
<TABLE>
DIRECT COSTS AND EXPENSES
The following table sets forth the direct costs of revenue, general and
administrative expenses, marketing and selling expenses and research and
development expenses as a percentage of revenue.
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
------------------- -------------------
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Direct costs 45% 40% 45% 42%
General and administrative 17% 14% 17% 16%
Marketing and selling 20% 17% 18% 18%
Research and development 4% 4% 4% 5%
</TABLE>
Direct Costs
Direct costs were $1,208,335 $1,018,053, $3,453,336 and $2,711,604 for the
three and nine month periods ended September 30, 1995 and 1994, respectively.
The increase in direct costs in 1995 is attributable to increased production
space and staffing in 1995 to position the Company to handle anticipated
volume increases in future periods. Direct costs as a percentage of revenue
were higher for the three and nine month periods ended September 30, 1995 as
compared to the comparable periods in 1994 primarily due to increased
production space and staffing undertaken in response to expanded business and
anticipated growth for the balance of 1995 and 1996.
Page 8
<PAGE> 9
General and Administrative Expenses
General and Administrative expenses were $440,945, $357,299, $1,279,635, and
$998,493 for the three and nine month periods ended September 30, 1995 and
1994, respectively. The increase in general and administrative expenses in
the 1995 periods as compared to the same periods in 1994 is primarily due to
higher expenses incurred as a result of expansion of the Company' s business
during the periods.
Marketing and Selling Expenses
Marketing and selling expenses were $536,276, $421,765, $1,356,536, and
$1,181,768 for the three and nine month periods ended September 30, 1995 and
1994, respectively. Marketing and selling expenses increased in each period
in 1995 as compared to 1994 due primarily to increased marketing activities
related to our core corporate services and the introduction of the Company's
new personal drug testing service, PDT-90.
Other Income (Expense) - Net
Other income for the three and nine month periods ended September 30, 1995 and
1994 results primarily from interest income from the Company's invested cash
balances. The increase in both the three and nine month periods ended
September 30, 1995, as compared to comparable periods in 1994, is due
primarily to the larger invested balances in 1995.
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
The Company's cash and investment balances at September 30, 1995 amounted to
$6,619,169. Cash generated from operations in the first nine months of 1995
was $1,554,955. The Company also received $4,213,194 and $1,005,198 of net
proceeds from the exercise of warrants and stock options during the year ended
December 31, 1994 and the nine month period ended September 30, 1995,
respectively.
Management believes that cash generated from operations, together with
proceeds from such warrants and option exercises, should be adequate to fund
anticipated working capital requirements. Depending upon the Company's
results of operations, its future capital needs and available marketing
opportunities, the Company may use various financing sources to raise
additional capital.
Working capital at September 30, 1995 amounted to $8,051,234 as compared to
$7,657,838 at December 31, 1994.
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The Company's capital expenditures were $813,945 for the first nine months of
1995. Capital expenditures for 1995 are expected to be approximately
$1,000,000 and are expected to be funded through cash generated from
operations and from existing cash reserves.
In December 1994, the Company's Board of Directors authorized the repurchase
of up to one million shares of the Company's common stock. This program is a
direct result of the Company's solid financial condition and cash-generating
capability, and it was authorized after evaluating various alternatives to
enhance long-term shareholder value. As of September 30, 1995, the Company
had purchased 499,487 shares of common stock for approximately $1,634,000.
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Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
The Exhibits filed as part of this Form 10-QSB are listed on
the Exhibits Index immediately preceding such Exhibits,
which Exhibit Index is incorporated herein by reference.
(b) Reports on Form 8-K - None.
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Pursuant to the requirements of the Securities Exchange Act of 1934 the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Psychemedics Corporation
Date: November 14, 1995 By: /s/ Raymond C. Kubacki, Jr.
---------------------------
Raymond C. Kubacki, Jr.
President and Chief Executive Officer
Date: November 14, 1995 By: /s/ Bruce M. Stillwell
----------------------
Bruce M. Stillwell
Vice President, Controller
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PSYCHEMEDICS CORPORATION
10-QSB
<TABLE>
EXHIBIT INDEX
-------------
<CAPTION>
Exhibit
Number Description
------ -----------
<S> <C>
11 Calculation of shares used in determining
net income per share
27 Financial Data Schedule
</TABLE>
<PAGE> 1
<TABLE>
EXHIBIT 11
CALCULATION OF SHARES USED IN DETERMINING INCOME PER SHARE
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------- -----------------------
1995 1994 1995 1994
----------------------- -----------------------
<S> <C> <C> <C> <C>
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING DURING PERIOD 19,782,101 19,418,005 19,561,551 17,368,113
EFFECT OF COMMON STOCK EQUIVALENTS
COMPUTED IN ACCORDANCE WITH THE
TREASURY STOCK METHOD 1,855,279 1,630,638 1,298,662 1,448,980
---------- ---------- ---------- ----------
21,637,380 21,048,643 20,860,213 18,817,093
---------- ---------- ---------- ----------
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S DOLLAR
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> SEP-30-1995
<EXCHANGE-RATE> 1
<CASH> 409,178
<SECURITIES> 6,209,991
<RECEIVABLES> 1,702,029
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 8,757,505
<PP&E> 3,651,807
<DEPRECIATION> 1,685,599
<TOTAL-ASSETS> 11,142,409
<CURRENT-LIABILITIES> 706,271
<BONDS> 0
<COMMON> 101,396
0
0
<OTHER-SE> 10,334,742
<TOTAL-LIABILITY-AND-EQUITY> 11,142,409
<SALES> 0
<TOTAL-REVENUES> 7,735,816
<CGS> 3,453,336
<TOTAL-COSTS> 3,453,336
<OTHER-EXPENSES> 2,962,136
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,500
<INCOME-PRETAX> 1,589,210
<INCOME-TAX> 104,300
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,484,910
<EPS-PRIMARY> 0.07
<EPS-DILUTED> 0
</TABLE>
